2-2-3-break-even

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Using the contribution to calculate the break-even point

The contribution value is used to calculate the break-even point
The break-even point is where total revenue earned for a product is exactly equal to its total costs and where the business is making neither a profit nor a loss
It is calculated using the formula

$Break short dash even space point space space space space space space space space equals space space space space space space space space space space fraction numerator Fixed space costs over denominator Contribution end fraction$

The break-even point is expressed in units (e.g. the number of scented candles)
Identifying the break-even point allows a business to understand how many items it needs to produce and sell to cover all costs before it starts to make a profit
- Each subsequent unit sold past this point will generate profit for the business

Worked Example

Cost and revenue data for Canterbury Glamping

Cost/revenue	Cost (£)
Revenue per pod per night	95
Variable costs per pod per night	19
Annual fixed costs	55,000

Using the information in the table, calculate how many pods need to be occupied each month for Canterbury Glamping to break even. [4]

Step 1: State the formula to calculate the break-even point

$Break short dash even space point space equals space fraction numerator Fixed space costs over denominator Contribution end fraction$ [1]

Step 2: Calculate the contribution

$equals space Selling space price space minus space variable space cost space per space unit equals space £ 95 space minus space £ 19 equals space £ 76 space space space$ [1]

Step 3: Apply the formula to calculate the break-even point

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Business_A-level_Edexcel

1-marketing-and-people

2-2-3-break-even

Using the contribution to calculate the break-even point

Worked Example

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